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Sunday, 24 May 2015 22:00

The Pitch for Perrigo: Takeover bid will play out over the summer; Allegan officials anxiously await outcome

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A Perrigo worker labels products on a packaging line in Allegan. A Perrigo worker labels products on a packaging line in Allegan. COURTESY PHOTO

Mylan N.V.’s move to acquire Perrigo Co. plc is headed to a potential hostile takeover bid that will play out in the coming months.

The $32.7 billion tender offer that Mylan plans to submit directly to Perrigo shareholders is part of three-way, high-stakes corporate drama that involves one of West Michigan’s iconic companies. Perrigo has so far rejected overtures from Mylan, which itself is the target of a $40 billion unsolicited takeover bid from Teva Pharmaceuticals Ltd. of Israel.

The Mylan proposal comes after Perrigo nearly tripled sales since 2007 through organic growth and a series of strategic acquisitions, including two major deals that positioned the company well for expansion in Europe.

But that track record of performance and the company’s potential for future growth have also made Perrigo a takeover target in the rapidly consolidating drug industry.

“When you reach that size and that profile, you are always on somebody’s radar screen,” said Bob Burton, managing director of the financial communications group at Lambert, Edwards & Associates Inc. in Grand Rapids, whose career spans nearly 30 years in investor relations and corporate communications.

“It does get to a point where you’re above the horizon and everybody’s going to be looking at you,” Burton said.

Perrigo posted revenues of $4.06 billion in its 2014 fiscal year that ended last June. In April, the company reported record sales of $1.05 billion for the third quarter of its present 2015 fiscal year, and nine-month sales of $3.07 billion. The company projects full-year sales of $5.4 billion to $5.7 billion.

Rooted in rural Allegan, Perrigo is now well-positioned to grow in Europe with the $4.5 billion acquisition in March of Belgium-based Omega Pharma, a leader in over-the-counter (OTC) medications on the continent. That acquisition is in addition to the December 2013 deal for Elan Corp. for $8.6 billion that included re-domiciling Perrigo in Dublin, Ireland.

A global, low-cost leader in OTC medications, Perrigo has a lot to offer a potential buyer, said David Flanagan, a professor of strategic management at Western Michigan University’s Haworth College of Business.

“Perrigo is very, very good at what it does. They are incredibly good at churning out these quality products where processes are so important and they are able to do it at a very low cost,” Flanagan said. “They are a powerful company in this area (OTC).”

Add on top of that a global drug industry where M&A is simply part of the everyday game, as corporations seek to drive growth, generate cost savings, enter new markets and extend product lines through acquisitions.

“In this day and age, we have a lot of CEOs that still like to play the M&A game,” Flanagan said. “Any company at all times is a takeover threat unless you’re just too big or you’re just too screwed up.”


Mylan initiated the takeover bid for Perrigo on April 8 with a $28.9 billion cash-and-stock proposal that was quickly rejected. Domiciled in the Netherlands and run from Pittsburgh, Pa., Mylan subsequently raised the offer, which Perrigo again rejected. Mylan then came back with a $32.7 billion stock-and-cash proposal that it plans to take directly to Perrigo shareholders, who have been urged by Perrigo directors to take no action.

Mylan’s proposal not only “substantially undervalues” Perrigo, but it also “does not take into account” the company’s capability to grow through the Omega Pharma deal, Perrigo Chairman and CEO Joe Papa said in an investor presentation to brokerage analysts earlier this month. The deal with Omega extended Perrigo’s global footprint from six to 39 countries.

Perrigo projects it can now grow organically at a compounded annual growth rate of 5 percent to 10 percent, and it sees “significant upside” for inorganic growth through additional acquisitions, which “we will continue to be very active in,” Papa said. The company has been growing at a rate in the mid-teens through organic growth and acquisitions.

“We believe we have a very strong standalone business,” he said.

Several factors are weighing in favor of Perrigo’s continued growth. In the U.S., $32 billion in prescription medications will switch in the years ahead to OTC products that Perrigo can produce. Additionally, Perrigo’s pipeline includes a projected $1 billion in new products coming over the next three years. The company also receives royalties from the multiple sclerosis drug Tysabri that came with the Elan deal.

If that all pans out, one brokerage analyst believes Perrigo has a case for remaining independent.

“We certainly agree with the near-medium term growth prospects, with macro-tailwinds being well-known, supporting (Perrigo)’s stand-alone existence. But we also believe some of these factors (are) not easily quantified at this time,” Stifel analyst Annabel Samimy wrote in an April 22 report to clients.

Even if Mylan’s takeover bid fails or gets dropped, Perrigo could see other suitors step forward in the future.

“Though not for sale, (Perrigo’s) strong model may still attract others,” Samimy wrote.


Despite the desire to go it alone in the volatile global pharmaceutical industry, a time could come where Perrigo, as a public company, may have to engage Mylan, Papa said during a May 6 Deutsche Bank investor presentation.

“If we get to a point where we think this is going to be a sale of the company – clearly, we’re not there now based on the valuation – obviously the board of directors would seek to get the best price for shareholders,” Papa said. “Sure, there is a number at some point. We’re not anywhere close to that based on our estimation (of) the unaffected price” of shares used to calculate Mylan’s proposal.

Perrigo will not seek to adopt a “poison pill” provision as a defensive tactic against Mylan.

“That’s not our style,” Papa said. “We’re not going to do that.”

Mylan’s hostile takeover bid will play out under Irish Takeover Rules that have public reporting requirements and an 81-day period for events to occur. The timeline will begin once federal securities regulators declare effective the shares Mylan registered to use for the deal.

The company’s present proposal offers Perrigo shareholders $75 in cash and 2.3 shares of Mylan stock for every Perrigo share, which equates to $232.23 per share. The $32.7 billion value of the offer is based on Mylan’s April 8 closing share price of $68.36.

The offer is complicated by Teva’s pursuit of Mylan, which is contingent on a deal with Perrigo not going through. Mylan itself has rejected Teva’s offer, saying it undervalues the company.


Whatever the outcome, the situation has caused some anxiety in Perrigo’s hometown of Allegan, where the company began 127 years ago and retains close ties to the community even as it has grown rapidly.

“Certainly, there is concern with what that would mean if they were to be bought,” said Nora Balgoyen-Williams, director of the Allegan County Economic Development Commission. “I’ve talked to many community leaders who are concerned about the ripple effects if a new corporation would come in and whether they would be as invested in the community, and what does that look like and what does the corporate structure look like.”

Perrigo employs nearly 3,200 people in Allegan County in production, research and development, and administrative positions. Of particular concern are the high-paying technical positions and corporate management jobs, Balgoyen-Williams said. But she added that the large manufacturing footprint that Perrigo has in Allegan is not as easy to move.

Sources said Allegan officials’ concerns for the future are well-founded.

Decisions by an outside corporate owner are “not going to be made with the best interests” of the local community or employees in mind, WMU’s Flanagan said.

“It’s really a high-stakes game for the people who work for Perrigo and Allegan, and a lot of it is uncertainty. We just don’t know (what will happen),” he said.

Mylan has said a deal with Perrigo could generate $800 million in operational cost savings and “they have to get it from somewhere,” said Burton of Lambert, Edwards and Associates.

Presuming Mylan can get the approval from its shareholders to make the tender offer, a process the company has already begun with a vote expected to come in September, Perrigo’s fate ultimately rests with its shareholders, 77 percent of which are institutional investors, according to data from

And when the large-cap institutional investors that are among Perrigo’s shareholders review the offer, their chief consideration is not hometown loyalties but rather what will bring the best value — a merger or remaining as a standalone company.

“These are not guys with loyalties,” Burton said. “Those are guys who are paid to perform.”

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